Globally, the petroleum industry has has gyrated between pandemic supply disruption effects and fluctuating demand-supply fundamentals causing international crude prices to seesaw between extremes, troughs and peaks. Pandemic risk and not so long ago, the Suez canal blockage effects on global supply chains caused record trade hemorrhage in billions of dollars. Africa’s second largest copper producer Zambia, has not been spared from these kinds of supply disruptions blips recent of which into the Easter festivities, petroleum transportation suffered a major set back. This was orchestrated by indigenous fuel transporters that commenced a strike action over requiring a greater share of petroleum supply transportation business to level off competition with foreign suppliers whose competitive edge has been generally a lower cost per metric cube.
For decades, Zambia’s fuel transportation business has been perfectly competitive in nature with zero protectionist measures such as preservation of quotas for the indigenous players as part of a free market private sector supply value chain. However, given deteriorating economic conditions and a rising cost of living, local players commenced a strike action that pressed for an increased supply quota for local transporters to mitigate dominance of non-local players. The transporters union dubbed Transporters Association of Zambia – PTAZ commenced a strike action that resulted in disruption of the Zambia’s fuel supply chain causing panic buying occasioned by widening lead delivery times over easter period. Gas stations in the copper producer, Zambia, lacked feed stock and resulted in long queues for two days as motorists attempted to hedge the scarcity with panic buying. It was however established that the pricing advantage, was the key driver that skewed most Oil Marketing Companies (OMC) towards preferring international transporters with a $25-$30 unit lower pricing difference.
Zambian authorities however successfully diffused the impasse after facilitating talks between OMC and transporters unions with eventual consensus over an increased quota of transportation business however at the cost of a lower yet homogenous cost with foreign players. Zambia’s Head of State, Dr. Edgar Chagwa Lungu directed that 50% of petroleum transport business be reserved for local suppliers.
The Oil Marketing Association of Zambia – OMAZ reached consensus with the Petroleum Transporters Association of Zambia – PTAZ agreed for lowering of the metric cube cost from $150 to between $125 to $130 as confirmed by OMAZ Head – Kafula Mubanga.
OTHER UPSIDE RISKS TO ZAMBIA’S PETROLEUM INDUSTRY
Other upside risks to Zambia’s petroleum industry include a weakening currency (exchange rate) in light of bullish international crude prices as global demand rescusitates on vaccine rollouts supply disruption has become the pressure point for the Africa’s second largest copper producer. A stable dollar liquidity is critical for Oil Marketing Companies (OMCs) as it provides for purchase of feed stock ensuring supply disruptions do not occur. Earlier shortages in the year was fueled by scarcity of dollars which disrupted OMC replenishment purchasing cycles leading to widening delivery lead times that manifested in shortages.
Zambia’s petroleum prices have remained subsidized for over a year given no adjustment despite a currency slide and oil price bulls on the international market. The recent reprieve through a value added tax scrap on petrol products provides a temporal cushion against price hikes but breeds producer burden as there are no value added tax claims for corporates anymore. This tax adjustment provides for an easy cost push effect to product end users through rising selling prices. Pressure for upward adjustment remains high as the energy regulator suppresses any hiking opportunity whose delay has been a decision skewed towards cushioning societal impacts of pandemic risks.
Energy remains one of the key suppressors of the private sector pulse metric, the purchasing managers index which has been in contraction for 24 straight months (<50). Supply disruptions have become a common theme in the red metal hotspot as foreign currency access remains a challenge. Zambia’s monetary policy committee hiked the benchmark interest rate 50 basis points to 8.5% in an effort to arrest currency depreciation induced inflation, but with little fruition.
Zambia’s March inflation reading headlined 22.8% in breach of the central bank target band of 6-8%.
The Kwacha Arbitrageur